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Analytics case study # 3 – Supply Side Analytics

This example considers the medical diagnostic device industry. A virus has erupted in developing rural areas throughout Asia. Indications are that the driving vector for this contagion is sanitation, and the result is an avian flu. The demand for a diagnostic test is immediate in an effort to contain the epidemic.  The regions affected are poorly developed and without adequate infrastructure; characterized by elementary roads, poor medical facilities and an unpredictable power grid.

The CDC is offering assistance to all US medical diagnostic companies for the development of a rapid infectious disease test that can be used in the field, without the requirement for medical facilities.  CDC has supplied to all interested companies denatured samples of the antigen (virus proteins) to induce a rapid response from the industry in order to quickly develop an infield diagnostic test.  This type of test platform utilizes a lateral flow membrane, which is essential to absorb and measure the virus proteins. Since the 1950’s, a particular supplier specializing in water filtration membranes in the 1990’s began extending its business by supplying membranes for medical use.  This supplier morphed into the sole supplier for the membrane component used in rapid diagnostic medical tests.  Due to its history as the largest industrial water filtration company, it enjoyed the greatest economies of scale in production over all suppliers, thus eliminating all less efficient producers in the market. The nature of this virus however is a highly viscous (thick serum) protein as compared to all proteins previously measured through this membrane material supplied by this single source supplier.

Each company interested in the CDC opportunity immediately assessed that the solution to this rapid test device was a new membrane configuration.  All companies in this sector had the same capabilities to produce.  At issue is sourcing the new membrane.  The market leader, company “XXX”, has placed a two-year advance order to purchase the entire capacity of this single source supplier of membranes for lateral flow technology membranes.

 

Case Questions:

1.   How can other companies source the membranes?

2.   Are there substitute products from other industries?

 

Analytics can be utilized to define supplier capacity.  While each company knows what they need, the question of ramping up and getting in on the revenues with this new diagnostic test now becomes an issue in specialized material sourcing.  Company “XXX” had sufficient capital and foresight to place an advance order, consuming a two year world supply for the entire current capacity of this single source supplier.  All competitors are basically without a membrane source supplier, until such time as the single source supplier can either increase its capacity, or another manufacturer enters the market.  Another option, however the least attractive, would be to enter the membrane manufacturing business.  The latter option would be foolish, given costs, learning curves, and the time lines needed to develop such membrane technology.  “EDF” medical diagnostic company, a small company in the field, understands Analytics.  Their research department analyzes the constituents of this protein to define the materials in membrane fabrication as compared to other membranes used in alternative industrial sectors.  Given the time lines to produce and enter the market, using a regression analysis for all of the constituents, company “EDF” is able to examine what other worldwide industrial sectors utilizing similar viscous constituents for their membrane.  This enabled them to identify supply sources never considered before.  Such industry data, using SIC’s, could generate multiple sources for the components required for immediate testing.

By Analytics “EDF” company discovered in the transportation industry a highly sensitive membrane used to process simple synthetic substances to lubricate intricate Nanobots as a heat reduction component in automotive engine pressure transfers ports.  Company “EDF” was able to find a near perfect component’s fit (an “R” value of .94 against a perfect 1.0) from multiple suppliers outside of their sector.  “EDF” was now quickly able to overcome the worldwide shortage of membranes caused by company “XXX” control of the worldwide supply.

While all of the other companies had to sit on the sidelines waiting for capacity to grow, using Analytics, “EDF” company was able to overcome a potential two year shortage of materials by finding substitute materials from the Transportation sectors outside of Healthcare.  Using Regression Analysis to examine “best fits” among a worldwide listing of different supply sectors, utilizing similar platforms, for different purposes, allowed company “EDF” to partake in the huge revenue stream for this new market opportunity.